June 9, 2017

Fears That Buyers Would Simply Cut Their Losses

It’s Friday desk clearing time for this blogger. “The number of construction cranes across Iceland is approaching the number counted in 2007, just prior to the banking collapse. It is likely, however, that the number of cranes will increase in the future, surpassing the 2007 numbers. Economists agree that there continues to be a shortage of apartments in Iceland. In Iceland, the number of cranes in use has at times been looked at as an indicator of economic strain since the visit of Robert Aliber, professor emeritus of International Economics and Finance at the University of Chicago. During his stay in 2008 just prior to the banking collapse, he tallied the cranes in use and spoke in no uncertain terms about the danger to the economy.”

“Magnús Árni Skúlason, economist at the consulting firm Reykjavík Economics, explains, however, that the number of cranes is not as good an indicator of economic instability as it was before the collapse. ‘In 2007, there was a debt bubble and an oversupply of residential real estate. The situation is different today.’”

“Britain’s housing shortage and continued growth in prices means the property market is showing increasing signs of dysfunction, according to a report from the Royal Institution of Chartered Surveyors. ‘Perhaps the most ominous signal is that contributors still expect house prices to increase at a faster pace than wages over the medium term despite the difficulty many first-time buyers are clearly having,’ said RICS Chief Economist Simon Rubinsohn. On the shortage, ‘it’s hard to see this as anything other a major obstacle to the efficient functioning of the housing market.’”

“‘Prices are too expensive,’ Josh Homans at surveyors Valunation said in the RICS report. ‘Excessive’ valuations are increasing and ‘we are now in a 2007 situation,’ he said.”

“What a difference a couple of months make. Barrie real estate swung from a sizzling hot seller’s market in February and March to an inventory-rich buyer’s market in late April. Within the city of Barrie, detached residential properties posted an average selling price in May of $566,077 which is an increase of 25 percent over May 2016. But that’s down from April when the average selling price was around $600,000.”

“It seems like an extreme change but that was such an extreme situation- unprecedented for Barrie - we were in early this year, said Rob Alexander, the president of the Barrie and District Association of Realtors. ‘What happened in March and early April was unprecedented and ‘crazy.’ As we got into April we started to see more inventory come along and went into full bloom in May. Whether it’s a matter of a traditional spring market or more people realizing, ‘Hey I should join the party here. Prices are strong maybe it’s a good time to move and put their home on the market,’ explains Alexander.”

“Knight Frank Malaysia associate director of residential sales and leasing Kelvin Yip says it will be a good year for homebuyers to buy for own occupation as they are spoilt for choice. ‘On the secondary market, buyers should look for motivated sellers to get some good deals,’ he says. ‘We have been getting listings in the secondary market where asking prices have been reduced for quick sale. This could be due to the property being in the market for a while. We do not see fire sales yet, but there are more motivated sellers.’”

“Brisbane’s slowing apartment market has spooked the city’s real estate agents, with fears among some in the industry that it was heading for a major fall. An inner-Brisbane real estate agent, who spoke on the condition of anonymity, said self-interest dictated that most agents would not publicly discuss the trouble facing the industry. ‘The unit market is flooded with oversupply,’ the source said. ‘The biggest problem is buildings with off-the-plan sales, which were purchased with 10 per cent deposits. These were sold at the peak of the cycle. You had tiny one-bedroom apartments selling for $450,000.’”

“Some of those were now being valued at as little as $320,000, the source said. The Hudson in Albion was considered a canary in the coal mine, the source said. There, apartments were advertised with discounts of up to 39 per cent, prompting a stoush between the developer and a marketer. That led to fears, the source said, that many buyers would simply cut their losses, rather than incur the long-term debt associated with overvalued properties. Lenders would also be unwilling to stump up the cash at settlement, due to their valuations falling well short of the purchase price. ‘They either have to bail on the 10 per cent or borrow elsewhere,’ the agent said.”

“As the Hampton Roads housing market heats up, finding deals on homes to flip is getting harder. ‘In my view, it’s harder to get anything at a good price,” said owner Wade Garnett of York-based Garnett Construction. ‘There’s so many people in the field now. Everybody wants to flip now. We’re seeing prices go up substantially.’”

“Short sales and foreclosures accounted for 13.4 percent of Hampton Roads sales in April, according to REIN.”

“According to the most recent market reports, office leasing volume in Manhattan is down 21 percent year-over-year in May, and the average price of new development condominiums in the borough plunged 15 percent month-over-month. Home prices for condo and co-ops in Manhattan stayed flat between April and May, while the average price of new development condos plunged 15% from $6.7 million to $5.7 million.”

“A prominent developer planning a residential tower for ultrawealthy Houstonians has shelved the project because he doesn’t think there are enough buyers in the market to move forward with construction. ‘At this particular time I do not have complete confidence in the fact the building can be sold out in the next 24 months,’ said Giorgio Borlenghi, who last summer said he would not start construction if he couldn’t sell half of the building’s proposed 46 units.”

“Residential global property has arguably been the most exciting investment of the past eight or nine years, but lately the fun has been draining away. House and apartment prices have been driven sky high by rock bottom interest rates and there are growing signs that they cannot go any higher. The days of double-digit annual house price increases appear to be over. The question now is whether the market is merely slowing, or whether it could go sharply into reverse. Is this a bubble, and if so, could it burst?”

“Nothing lasts forever. London was the world’s No 1 property hotspot, but lately the luxury end of the market has slipped. Craig Plumb, the head of research at global real estate experts JLL Mena, says residential prices in the Middle East and North Africa (Mena) have been generally falling for the past two years, but investors shouldn’t panic. Prices have declined by between 5 per cent and 15 per cent since mid 2014, he says, with Dubai leading the way. ‘This is nothing like 2008-09, there is no bubble waiting to burst.’”

“Faisal Durrani, the global head of research at Cluttons, and an expert in the Middle East and Africa property markets, also says global property is slowing while ruling out the prospect of a crash. ‘This is no bubble bursting, just a gentle deflating.’ In Dubai, prices in Burj Khalifa are down more than 20 per cent in the last 12 months, while villa and apartment prices in Palm Jumeirah are also falling, he says. ‘The priciest areas are coming off worse.’ In Abu Dhabi, Mr Durrani says prices in Saadiyat Island are down 25 per cent over the year, with rents down one- third. ‘Demand at the top of the market has dried up as there are now fewer senior level jobs, and residents are losing their living allowances or seeing them cut. Job insecurity is growing and people are downsizing to save money. Demand for luxury rentals has therefore diminished significantly.’”

“Many Middle Eastern investors are now looking farther afield to Toronto as a result, he adds. ‘Canada offers high-quality education and luxury high-end properties. Prices are rising but property is still relatively affordable, starting at US$600 per square foot compared to, say, £5,000 -plus in London’s Mayfair. This is a massive difference and Canada is a welcoming environment for investors from the Gulf.’”